Least-squares Importance Sampling for Monte Carlo security pricing

DOI10.1080/14697680701762435zbMATH Open1154.91433arXivphysics/0703181OpenAlexW3125877414MaRDI QIDQ3605223FDOQ3605223

Authors: Luca Capriotti 

Publication date: 23 February 2009

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: We describe a simple Importance Sampling strategy for Monte Carlo simulations based on a least squares optimization procedure. With several numerical examples, we show that such Least Squares Importance Sampling (LSIS) provides efficiency gains comparable to the state of the art techniques, when the latter are known to perform well. However, in contrast to traditional approaches, LSIS is not limited to the determination of the optimal mean of a Gaussian sampling distribution. As a result, it outperforms other methods when the ability to adjust higher moments of the sampling distribution, or to deal with non-Gaussian or multi-modal densities, is critical to achieve variance reductions.

Full work available at URL: https://arxiv.org/abs/physics/0703181

Recommendations

• Implementing importance sampling in the least-squares Monte Carlo approach for American options
• Importance sampling for backward SDEs
• Quantization based recursive importance sampling
• Optimal importance sampling for Lévy processes
• scientific article; zbMATH DE number 1054684

zbMATH Keywords

Monte Carlo methodsderivatives pricingfinancial derivativesfinancial engineering

Mathematics Subject Classification ID

Approximation methods and heuristics in mathematical programming (90C59) Numerical methods (including Monte Carlo methods) (91G60) Microeconomic theory (price theory and economic markets) (91B24)

Cites Work

• Martingales and arbitrage in multiperiod securities markets
• The sample average approximation method for stochastic discrete optimization
• Monte Carlo methods for security pricing
• Asymptotically optimal importance sampling and stratification for pricing path-dependent options
• Adaptative Monte Carlo Method, A Variance Reduction Technique
• Importance sampling for portfolio credit risk
• Simulation-based optimization—convergence analysis and statistical inference

Cited In (13)

• Title not available (Why is that?)
• Amostragem descritiva no apreçamento de opções européias através de simulação Monte Carlo: o efeito da dimensionalidade e da probabilidade de exercício no ganho de precisão
• Non-parametric partial importance sampling for financial derivative pricing
• Efficient Importance Sampling in Quasi-Monte Carlo Methods for Computational Finance
• Adaptive importance sampling in least-squares Monte Carlo algorithms for backward stochastic differential equations
• An efficient exponential twisting importance sampling technique for pricing financial derivatives
• On the robustness of least-squares Monte Carlo (LSM) for pricing American derivatives
• On an automatic and optimal importance sampling approach with applications in finance
• Implementing importance sampling in the least-squares Monte Carlo approach for American options
• Improved initial sampling for the ensemble Kalman filter
• Title not available (Why is that?)
• Importance sampling for option pricing with feedforward neural networks
• Targeting Kollo skewness with random orthogonal matrix simulation

This page was built for publication: Least-squares Importance Sampling for Monte Carlo security pricing

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q3605223)